Plaintiffs and the other parties opposed to the Charter defendants' motions
*fn1"
contend that the Charter defendants exercised direct control over these decisions and actions by Cape Industries, and that the circumstances warrant imposition of liability directly upon the Charter defendants, without regard to the formalities of the corporate structure. That is, they argue that the Charter defendants represent merely the alter ego of Cape Industries, and that the corporate veil should be pierced.

In support of their summary judgment motions, the Charter defendants advance a host of arguments: the corporate structure was adopted for perfectly legitimate reasons having nothing to do with asbestos litigation; the evidence establishes that the Charter defendants did not in fact exercise the required degree of control over Cape Industries; the complained-of actions by Cape Industries were neither fraudulent, illegal, nor contrary to public policy, but merely self-protective; and there is no precedent for imposing alter ego liability except in the case of closely held corporations.

DISCUSSION

The parties agree that Pennsylvania law is applicable in this diversity litigation. In Pennsylvania, as in most jurisdictions, it is permissible to disregard corporate formalities only in exceptional circumstances. See, e.g., Zubik v. Zubik, 384 F.2d 267 (3d Cir. 1967), cert. denied, 390 U.S. 988, 19 L. Ed. 2d 1291, 88 S. Ct. 1183 (1968). The corporate entity being disregarded must be so controlled as to have essentially no "mind" of its own; but this alone is insufficient. There must also be a showing that the corporate entity is being used "to defeat public convenience, justify wrong, protect fraud or defend crime". Sams v. Redevelopment Authority, 431 Pa. 240, 244, 244 A.2d 779, 781 (1968). More recently, the Pennsylvania Supreme Court has observed that the "legal fiction of a separate corporate entity was designed to serve convenience and justice, . . . and will be disregarded whenever justice or public policy demand and when the rights of innocent third parties are not prejudiced nor the theory of the corporate entity rendered useless." Ashley v. Ashley, 482 Pa. 228, 237, 393 A.2d 637, 641 (1978).

The test is the same when the corporate relationship involves a parent and subsidiary. Like a majority shareholder in any corporation, the corporate parent is not liable for the acts of the corporate subsidiary unless the parent actually exercises control of the subsidiary. See Botwinick v. Credit Exchange, Inc., 419 Pa. 65, 213 A.2d 349 (1965); 1 C. V. Swearingen, Fletcher Cyclopedia of the Law of Private Corporations, § 43 at p. 474 (rev. ed. 1983). The decision in each case is fact-specific. As indicia of control, courts tend to look to such matters as shared officers and directors, and the extent of the parent's domination of the subsidiary's policies, practices, and finances. See, e.g., In re Penn Central Securities Litigation, 335 F. Supp. 1026 (E.D. Pa. 1971); Fletcher, supra, § 43 at p. 472 and supplement § 43.20 at p. 34. No one factor is alone dispositive.

The Charter defendants argue that the standard applied by the Barber court in reaching its jurisdictional decision is less stringent than the one to be applied on the issue of control in the veil-piercing context. We disagree. The jurisdictional question is resolved by looking to the control issue only. While this does not resolve the broader issue of disregard of corporate entity, it satisfies the first aspect of the test for veil-piercing.
*fn3"
Indeed, many of the cases relied upon by all parties to describe the control necessary to pierce the corporate veil are cases concerned with the threshold issue of personal jurisdiction. See, e.g., Botwinick, supra; Hargrave v. Fibreboard Corp., 710 F.2d 1154 (5th Cir. 1983).

The Barber court's discussion of Charter's control over Cape reflected but one of two alternative bases for its decision and, arguably, may be dictum ; but it is nevertheless persuasive. Our own independent review of the voluminous record in this case persuades us that, at the very least, there are substantial issues of material fact as to whether Charter's control of Cape is sufficiently pervasive to satisfy the first prong of the veil-piercing test. On this record, the Charter defendants are not entitled to summary judgment on that issue.

Upon its formation, Charter owned, by virtue of the involvement with Cape of one of Charter's forerunners, Central Mining & Investment Corp. (CMIC), 16.8% of the shares of Cape's stock. One to two CMIC executives sat on Cape's Board before the merger, and this practice was continued by Charter. Gradually, Charter began increasing its ownership of Cape. In 1969, Charter successfully attempted a "takeover" (so-called by Cape's chairman and managing director at the time, Ronald Dent -- see Dent Deposition at 48-49), of Cape, as a result of which it acquired nearly 63% of Cape's common stock, and all of its preferred shares. At present, Charter's share of Cape's common stock has increased to 67.3%.

In making its 1969 tender offer, Charter advised Cape's shareholders that Charter's business

is allied to the building and light engineering activities of Cape and it is in the opinion of Charter desirable to make use of the wide experience of Cape's management to expand and develop this side of the Charter group's activities.

Cape thus became Charter's "principal industrial subsidiary". See Ex. 8, Appendix to LAQ's supplemental brief, at 2198. Not surprisingly, Charter then increased its representation on the Cape Board to three directors. (Dent testified that he assured Charter's managing director Sidney Spiro that two directors would be sufficient since the Cape Board voted by consensus; nevertheless, Spiro demanded three and Dent acquiesced. Dent at 70.) These directors were members of the Charter Board's Executive Committee -- a committee composed of Charter Board members who also typically functioned as department or division heads; the Executive Committee, which met two to three times each week, was responsible for Charter's day-to-day operations and for the oversight of Charter's investments. See Stopford-Sackville at 29, 35.

Charter is careful to point out that its nominees to Cape's Board were non-executive directors, meaning that they served "only" on Cape's Board, but not on its executive committee. Nevertheless, one may not ignore the fact that these non-executive directors typically served Cape as deputy chairman (whose duties included membership in the committee which set the salary and remuneration of all of the directors) and as chairman of the Board, and that Cape did not even have an executive committee until some time after the Charter Board suggested that one be formed in 1967. Rudland Ex. B at 1426. And, quite obviously, the role of the nominees was not simply to "mind" the Cape investment, but to convey to Cape the views of the parent and see to their implementation. The minutes of the meeting of Charter's Executive Committee on October 29, 1970, for example, contain the following reference to Cape:

Discussions have taken place with Cape directors concerning the future management of that group. It has been decided that Mr. R. H. Dent should continue as Chairman but the position of Managing Director, which he has held hitherto, will be filled by Mr. G.A. Higham from the 1st January 1971. Mr. F.P. Parks will be Assistant Managing Director.

Rudland Ex. B at 1454. At this meeting, inter alia, were Sidney Spiro, Managing Director of Charter and Deputy Chairman of Cape's Board, and Lionel G. Stopford-Sackville, also a member of Cape's Board.

Stopford-Sackville recalled a luncheon meeting attended by Charter's nominees to the Cape Board and the other non-Charter non-executive Board members, at which it was decided that Higham should replace Dent, subject to Spiro's "canvassing" the executive directors, except for Higham and Dent. Stopford-Sackville at 124. Dent testified that he too was at this meeting and had suggested Higham and Parks for the position. Dent at 128, 136. Spiro remembered that Dent himself determined who his successor should be. Spiro at 38.

But the question is not simply one of succession; a determination was being made as to how Cape should be run. Dent testified that it was Spiro who initiated the idea of a change in the structure of Cape's leadership, asking Dent to think about giving the role of managing director to someone else and to suggest possible successors. Dent at 127-28. Nor did this occur, as Spiro suggested, shortly before Mr. Dent's retirement. Spiro at 38. Dent remained as chairman of Cape until 1979, when he was replaced by Stopford-Sackville of Charter and then by Higham. Dent did, however, begin to draw his pension when he gave up his position as an executive director in 1975, five years after the luncheon meeting. Dent at 6.

Appendix to LAQ's supplemental brief, Ex. 3 at 3. Present at this meeting were all three Charter executives who were nominees to Cape's Board, including Cape's deputy chairman. North American Asbestos Corp. (NAAC),
*fn4"
a wholly owned subsidiary of Cape, was dissolved in May 1978.

Thereafter, acting on English and American legal advice, Cape's management resolved that it would not appear in any asbestos suits brought against it in the United States (see Higham (July 5, 1984) at 62-63), the prevailing corporate belief being that default judgments entered against Cape in the United States could not be enforced against it in England. See 1982 Charter Annual Report, quoted in LAQ's supplemental brief at 5 n.5. Cape also appears to have instructed its insurers not to defend any such suits. See LAQ's supplemental brief at 4 & n.3.

In June 1979, Cape completely divested itself of its South African asbestos mines; the mines were sold to Transvaal Consolidated Land and Exploration Co. (TCL), a South African firm. The Cape-Charter board members recalled that negotiations for the sale originated perhaps as early as the mid-1970s for various reasons, including the decline in the profitability of asbestos ventures and the political obstacles involved in doing business with South African firms. See, e.g., Richardson at 28; Higham at 68; Dent at 82. None of these gentlemen could recall the sale being primarily motivated by a desire to be rid of liability-rich assets. As noted above, however, the agreement of sale indemnified TCL for any judgment arising out of asbestos claims existing at the time of sale or instituted within three years thereafter. The terms of the indemnification included the condition that the purchaser not appear to defend actions instituted in the United States; i.e., this protection was conditioned on TCL defaulting in American lawsuits. See Appendix to LAQ's Supplemental Brief, Ex. 4 at C1000142-143. Thus, although as Higham observed, TCL was not thereby absolutely precluded from defending suits in this country, it was effectively deprived of whatever incentive it may have had to do so.

We do not, of course, hereby attach liability to Charter. It is clear, however, that if the plaintiff and LAQ can prove that Charter controls Cape, and that Cape has deliberately avoided liability to American plaintiffs, it will be fair to ask Charter to stay and defend Cape's position. Motions denied.

ORDER

AND NOW, this 6th day of May, 1985, it is ORDERED that the Motions for Summary Judgment of defendants Charter Consolidated, Ltd., Charter Consolidated Investments, Ltd., Central Mining Finance, Ltd., Charter Consolidated Services, Ltd., Consolidated Mines Selection Company, Ltd., and The British South Africa Company in the above-captioned cases are hereby denied.

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